Supplier Relationship Management: does it add value?

Many organizations have introduced Supplier Relationship Management (SRM). Some are able to quantify the benefits, mostly in the form of ‘savings’, by which they generally mean price or cost reductions. A few point to incremental benefits, such as examples of innovation that may have led to increased revenue or profits.

Why is the picture so vague and so varied? A major reason is the lack of consensus about what constitutes SRM. For some, it means little more than a segmentation exercise. For others, it may be sustaining a focus on control and compliance. At the top end of the spectrum,  it can involve extensive joint planning and high value strategic initiatives. No wonder, then, that results vary quite dramatically.

One problem with SRM is that it is often viewed as an extension of Procurement and therefore focuses on issues of power and control – concentrating on the biggest suppliers in an effort to reduce spend. Those suppliers are certainly important, but often they are not the source of major innovation. So the ‘strategic’ relationships, often with much smaller, agile suppliers which deliver market differentiation are managed by the business units.

But the bigger problem is that SRM programs mostly miss the point. They focus on the one-to-one relationship with the biggest suppliers and ignore the many-to-many relationships on which business performance depends. As I look at ‘best practice’, it is increasingly clear that the critical issue is not supplier relationship management, but managing supplier relationships. Those two are fundamentally different. “MSR” is about engendering collaborative behaviors across interdependent supply networks, to ensure benefits for all parties. Of course, it can be further improved by a solid SRM program, but SRM without MSR typically delivers very little value.

IACCM recently developed a presentation on this topic, with examples that illustrate the success that can be achieved. It will shortly be the subject of a webinar. If you are disappointed with the results of your SRM program, it will be worth tuning in.